JUS.L Regulatory News (JUS)

Jupiter US Smaller Companies PLC ('the Company')

Legal Entity Identifier: 549300HKKL9K1NY4TW55

Half Yearly Financial Report for the six months to 31 December 2018

Financial Highlights for the six months to 31 December 2018

* Alternative performance measure

Chairman's Statement

Performance

It is disappointing to have to report that in the six months to 31 December 2018 the Net Asset Value ('NAV') per share of the Company fell 11.1%. This was better than the 14.9% loss for the Company's benchmark, the sterling-adjusted Russell 2000 Index. Accordingly, I am pleased to report that we achieved a small element of capital preservation, despite these more difficult market conditions.

US equities had a poor six months: in dollar terms the Russell 2000 Index fell 17.9%, which was significantly worse than both the Standard & Poor's Composite Index which fell 7.8% and the technology-oriented NASDAQ Index which fell 11.7%.

Gearing facility

During the period the Company maintained borrowing under its loan facility with Scotia Bank of $10 million. The current maximum potential gearing is set at 20% of the Company's assets. At 31 December 2018 the net gearing (i.e. debt less cash compared to its equity capital) was 0.1%. As at 28 February 2019, gearing was 0.0%.

Share price and discount

The Company's share price fell 11.1% to 916p over the period. The discount to NAV was 6.6% at the end of the period, which compared to a discount of 6.7% at 30 June 2018. As at 28 February 2019, the discount was 8.3%.

The Company bought back 224,421 Ordinary shares in the period at an average discount of 8.5%. At 31 December 2018 3,645,515 Ordinary shares were held in Treasury. The Board will continue to apply its policy of buying back shares at appropriate times with a view to limiting any discount in the longer term to less than 10% in normal market conditions.

Outlook

We believe the US smaller company sector is still an attractive and interesting one for long term investors. It is generally under-researched and offers areas of undiscovered value.

Gordon Grender

Chairman

15 March 2019

Investment Adviser's Review

Performance

Although NAV per share fell by 11.1% in the six months period to 31 December 2018 it performed relatively well compared to the benchmark's loss of 14.9%. The drop reflects especially difficult market conditions in the period. The favourable relative comparison reflects the Investment Adviser's conservative investment approach that aims to provide a degree of capital preservation.

Market review

Although equities initially made new highs, concerns soon mounted and they suffered their worst losses since the 2011 Eurozone debt crisis. Investors worried about the sustainability of corporate profits, the impact of the US trade dispute with China and the effect of rising interest rates, particularly on the housing market. Despite this, the US economy seemed to be growing robustly with high readings from the usually reliable ISM Manufacturing indicator (or purchasing managers' index).

The Federal Reserve increased interest rates twice in the period. Credit markets were under pressure and corporate bond spreads widened significantly (normally a harbinger of problems for corporate profits). In December the market for new issuance of high yield bonds closed because of a lack of investor demand.

Intense political pressure was applied to the Federal Reserve to reverse its policy of interest rate increases. There were dovish comments from the Fed and reports of progress in trade negotiations with China. As a result, the equity market began to recover in the final days of the year.

All sectors of the Russell 2000 Index fell in the period. The worst performers included cyclical sectors, as might be expected: energy (-42% in dollar terms), materials and processing (-26%) and health care (-20%). The more defensive utilities sector (-3%) had the least negative showing, followed by technology (-13%) and consumer discretionary (-16%) sectors.

Portfolio Review

The Investment Adviser continued the policy begun in October 2017 of putting more emphasis on running winners and concentrating the portfolio. The weighting in the top ten holdings increased to 41% at the end of the period from 36% at the start.

The Investment Adviser took advantage of market weakness to make new purchases in more cyclical stocks. Examples were LCI Industries, a manufacturer of assemblies for recreational vehicles ('RVs'), and Univar, the leading US distributor of chemicals. Both have good growth prospects; millennials are increasingly buying RVs in order to enjoy the outdoors and the chemical distribution industry is relatively immature.

The period saw a significant level of corporate activity in the portfolio. Civitas Solutions and REIS both received agreed bids. Civitas is the leading provider of care for intellectually disabled adults and was sold to Centrebridge Partners, a private equity firm. REIS, a provider of commercial real estate data to lenders and investors, was bought by Moody's.

Acxiom and NETGEAR both announced major restructurings. Acxiom's $2.2bn sale of its mature consumer marketing data division to Interpublic was well-received by the market. The remaining marketing technology business was renamed LiveRamp. Home wi-fi equipment producer NETGEAR spun out to shareholders its faster growing wi-fi security camera operations, Arlo Technologies. In other M&A-related activity, the portfolio received shares in Tulsa-based bank BOK Financial in exchange for Denver-based CoBiz Financial. After Gray Television's successful bid for Raycom Media earlier in the year, the holding was sold as the merger benefits seemed fully recognised by the market.

The best contribution to performance was from The Chefs' Warehouse, the leading distributor of specialised food to upmarket restaurants, which benefited from better integration of recent acquisitions. Acxiom performed strongly after the restructuring already mentioned. America's Car-Mart provides finance for the used cars that it sells to credit-impaired consumers and it contributed well: the end of easy credit is resulting in weaker competition and much stronger results for the company.

On the negative side Parsley Energy detracted most from performance: weak oil prices hurt the shares of this oil and gas exploration and production company. However, there are good prospects to boost oil production and it is a potential takeover target given the high quality of its Permian Basin assets. GMS, the leading distributor of internal building products, suffered from a weaker housing market and discounting by competitors; pressures from discounting are likely to fade and the shares should benefit as debt is reduced using its strong cash flow. American Vanguard, a niche producer of agricultural chemicals was hit by concerns about a trade war. A trade deal with China is quite possible, and there are good opportunities from M&A and a recovery in US farm incomes.

Outlook

The market began to recover at the end of the period and continued afterwards, rising strongly. A less aggressive stance by the Fed brightens prospects for US equities. There is however some concern about the pace of future earnings growth overall, although a cessation of hostilities with China on tariffs would provide a boost. Many of the companies in the portfolio operate in niche areas and the prospects for profit growth are in many cases considerably better than for the market overall.

Robert Siddles

Fund Manager

Jupiter Asset Management Limited

Investment Adviser

15 March 2019

Twenty largest equity holdings as at 31 December 2018

The value of the twenty largest equity holdings represents £92.9 million (2018: £100.0 million) and 65.0% (2018: 61.5%) of the Company's total investments.

Cross Holdings in other Investment Companies 

As at 30 June 2018 and 31 December 2018, none of the Company's assets were invested in the securities of other listed closed-ended investment companies.

Interim Management Report

Related Party Transactions

During the first six months of the current financial year no transactions with related parties have taken place which have materially affected the financial position or performance of the Company. Details of related party transactions are contained in the Annual Report & Accounts for the year ended 30 June 2018 and in the Notes to the Accounts of this report.

Principal Risks and Uncertainties

The principal risks and uncertainties associated with the Company's business are set out on pages 15 and 16 of the 2018 Annual Report & Accounts.

In the view of the Board these principal risks and uncertainties are as applicable to the remaining six months of the financial year as they were to the six months under review.

Going Concern

The Half Yearly Financial Report has been prepared on a going concern basis. The Directors consider that this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. In considering this, the Directors took into account the Company's investment objective, risk management policies and capital management policies, the diversified portfolio of readily realisable securities which can be used to meet short-term funding commitments and the ability of the Company to meet all of its liabilities and ongoing expenses. Thus the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Directors' Responsibility Statement

The Directors of Jupiter US Smaller Companies PLC confirm to the best of their knowledge that:

(a) the condensed set of financial statements, prepared in accordance with the applicable set of accounting standards gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company at, or, as applicable, for the period ended 31 December 2018.

(b) the Chairman's Statement and the Interim Management Report include a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules; and

(c) the Interim Management Report includes a fair review of the information required by DTR 4.2.8R of the Disclosure and Transparency Rules.

The Half Yearly Financial Report has not been audited or reviewed by the Company's auditor.

For and on behalf of the Board

Gordon Grender

Chairman

15 March 2019

Income Statement

The total column of this statement is the profit and loss account of the Company prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP').

All revenue and capital items in the above statement derive from continuing operations. 

No operations were acquired or discontinued in the period.

The financial information does not constitute 'accounts' as defined in section 434 of the Companies Act 2006.

Statement of Changes in Equity

Statement of Financial Position

* Under the Company's Articles of Association any dividends are distributed only from the revenue element of retained earnings.

Notes to the Accounts

1. Accounting policies

The significant accounting policies, which have not been changed and have been applied consistently during the period ended 31 December 2018 (except to align with changes to the AIC SORP and FRS 102 - the impact of which is substantially in relation to presentational, disclosure and non-quantifiable aspects).

FRS 104, 'Interim Financial Reporting', issued by the FRC in March 2015 has been applied in preparing the financial statements included in this half yearly report.

2. (Losses)/gains on investments held at fair value through profit or loss

3. Return per share

4. Transaction Costs

During the period expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:

5. Net Asset Value per Ordinary share

The Net Asset Value per Ordinary Income share as at 31 December 2018, calculated in accordance with the Articles of Association, was as follows:

Net Asset Value per Ordinary share on the balance sheet is based on net assets of £142,980,000 (30 June 2018: £163,339,000) and on 14,577,898 (30 June 2018: 14,802,819) Ordinary shares, being the number of Ordinary shares in issue at the end of the period.

6. Retained earnings

The table below shows the movement in the retained earnings analysed between revenue and capital items:

7. Related Parties

Jupiter Unit Trust Managers Limited ('JUTM'), the Alternative Investment Fund Manager, is a company within the same group as Jupiter Asset Management Limited, the Investment Adviser. JUTM receives an investment management fee as set out below.

JUTM is contracted to provide investment management services to the Company subject to termination by not less than twelve months' notice by either party. The investment management fee is 0.75% of Net Assets up to £150 million; plus 0.65% of Net Assets in excess of £150 million but less than or equal to £250 million; plus 0.55% of Net Assets in excess of £250 million. The investment management fee is paid on a quarterly basis.

The investment management fee payable to JUTM for the period 1 July to 31 December 2018 was £591,000 (year to 30 June 2018: £1,221,000) with £269,000 outstanding as at 31 December 2018 (30 June 2018: £303,000).

No investment management fee is payable by the Company to JUTM in respect of the Company's holdings in investment trusts, open-ended funds and investment companies in respect of which Jupiter Investment Management Group Limited, or any subsidiary undertaking of Jupiter Investment Management Group Limited, receives fees as investment manager or investment adviser.

There are no transactions with the Directors other than the remuneration paid to the Directors as disclosed in the Directors' Remuneration Report on page 28 of the 2018 Annual Report & Accounts and as set out in Note 5 to the Accounts on page 40 and the beneficial interests of the Directors in the Ordinary shares of the Company as disclosed on page 29.

Availability of Half Yearly Financial Report

The Half Yearly Financial Report will shortly be available for download from the Company's website www.jupiteram.com/JUS. 

By order of the Board

Jupiter Asset Management Limited

Company Secretary

15 March 2019

For further information, please contact:

Richard Pavry

Head of Investment Trusts

Jupiter Asset Management Limited

investmentcompanies@jupiteram.com

020 3817 1000

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